Tuesday, November 18, 2008

How Did Your Canadian Pension Plan Fare at the Casino?

The second quarter CPP Fund investment results are now posted. Please remember, the reporting period ended on 30 Sep.; before the real damage occurred in the subsequent weeks. The reported loss on investments was $9.5 B or about 7.5% of the fund value as at the beginning of the quarter. The fund account was bolstered by $4.3 in contributions not needed for benefit payments (taxes by another name). In the equity category the total $ amount is shown to be $70B of which $11.6 is in private equities. As of the 2008 annual report this category totaled $13.4B. It is difficult to know without a detailed examination of investment changes made along the way if the reduction of nearly $2B is from write downs or sales. Private equity investments that I am aware of are in serious trouble presently as financing sources have melted away.

Since 30 Sep. 08 the equity markets have retreated about 15-20% which means that the $70B is probably more like $58B today. My earlier estimate of a loss of $23B, while premature, looks like it might be too conservative.

The December presentation to Parliament of the Actuary's report will be interesting. It is hard to imagine that his assumptions will not be modified to reflect a growing reality. This will challenge the present understanding that the fund is sound for 75 years forward.

Does anyone wish to volunteer what they think it will take to cause the government to reverse the investment strategy for the fund?

The "line in the sand" question from before.

Regards from Erik



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